Disney buys Pixar for US$7.4 billion in stock

The months of speculation have finally come to an end: the House of Mouse …

The deed is done, as Pixar's board of directors has accepted Disney's offer. The deal will replace every PIXR share with 2.3 DIS shares, which at today's trading prices values Pixar at US$7.4 billion. I bet Steve isn't complaining about getting $3.7 billion for something he spent $10 million on. As expected, Jobs will get a spot on the board, though not as chairman (for now). John Lasseter will serve as Chief Creative Officer of Disney Animation, as well as Principal Creative Advisor at Walt Disney Imagineering; Ed Catmull becomes President of the Animation department. In short, Pixar executives will have a major influence on the future direction of Disney animation and theme park entertainment.

Original story:

Bob Iger has certainly not started his tenure as CEO of Disney slowly. He's pushing the movie industry towards "day and date" release schedules, moving some of ABC's top-ranked shows into online delivery channels, and just when you thought he'd take a break, his board of directors gave him the authority to purchase long-time Disney partner Pixar Animation Studios for $7 billion worth of Disney stock. Today, the ball is in Pixar's court, and that company's directors have scheduled a phone conference to mull over the details of the offer. The deal is said to be fairly complex, and should include a seat for Steve Jobs on the Disney board of directors, the aforementioned truckload of stock certificates (50.6 percent of which goes into Steve's personal vault, making him the largest holder of Disney stock), and some degree of authority over Disney's animation department for Pixar staff such as Toy Story director and ex-Disneyite John Lasseter. The exact details won't be known until the bid is accepted—or rejected, but a persistent rumor has placed Jobs in the seat of outgoing Disney board chairman George Mitchell.

Critics of the buyout feel that Pixar would be better off as an independent company, free to strike a better distribution deal with anybody from Paramount to Fox. There's also some concern that the freewheeling Pixar culture won't mesh well with the stodgy authoritarian modus operandi at Disney, and that the purchase price is too low. $7 billion is one lousy percent more than the market cap Pixar sported last Friday, before the offer was confirmed. The stock has been on a tear for months, though, so the takeover premium may already have been priced into the stock.

On the other hand, in yet another confirmation of the fact that you can't please everybody, there are some who feel the bid overvalues Pixar. At 40 times trailing earnings and 21 times last year's sales, the company doesn't come cheap. It helps a bit that Disney gets to tack Pixar's billion dollars of debt-free equity goodness onto its own, heavily leveraged balance sheet. But what may matter most in the end is Pixar's proven ability to come up with fresh material and characters, on which Disney can base theme park rides, toddler pajamas, and lunch boxes. Disney's Chicken Little was a box office hit, but a minor one compared to blockbusters like The Incredibles and Toy Story 2. Disney's lifeblood is its stable of cartoon heroes and villains, and it may turn out that the most important ink in the animation business is what might soon be drying on the purchase slip in Steve Jobs' hand.